I'm the environment editor at Forbes. Before joining Forbes in April 2011, I wrote about all things green and tech as a contributor to The New York Times, a senior editor at Fortune and an assistant managing editor at Business 2.0 magazine. I previously was the business editor at the San Jose Mercury News and during the (first) dot-com era served as a senior writer and senior editor at The Industry Standard (RIP).

A Solar Trade War With China Would Hurt U.S. Industry

This guest post was written by Mike Hall, chief executive of Borrego Solar, a San Diego-based solar installer.

By Mike Hall

There have been a number of high-profile actions taken against Chinese companies that export solar photovoltaic modules to the United States, the most recent of which was a complaint lodged with the federal International Trade Commission by seven U.S.-based solar manufacturers.

The companies allege that several Chinese manufacturers have dumped product onto the market by selling it below cost to drive competitors out of business. And although I am not condoning anti-competitive practices, I also can’t support claims that falling module prices hurt the U.S. economy.

After being on a steady decline since 2008, module prices have absolutely crashed this year. And while the pain has been felt industry wide, it has impacted module and cell makers the most. These companies have seen declining sales and shrinking or negative margins. Unfortunately, the coming quarters look to be even more challenging as prices continue to decline and many need to contemplate selling at negative margins to keep the lights on. This is the motivation for the complaint, and it’s a strong one.

While I am not in a position to determine the validity of the complaint, it seems to me that there is something much simpler going on than a concerted Chinese conspiracy to drive U.S. manufacturers out of business.

There is a massive over supply of cell and module manufacturing capacity, as well as an oversupply of inventory. This is true due to a number of economic factors, including the soft global economy; the impact of the euro credit crisis on previously booming solar markets in Germany, Spain and Italy; and an overly ambitious growth forecast that led to record manufacturing capacity increases in 2007 and 2008.

In the end, the reason for the rapid 2011 price drop is likely nothing more than the most classic and simplest of free market concepts: supply and demand. All manufacturers are feeling the pain of this oversupply, as even the healthiest companies are pressured by investors, auditors and management to reduce inventory.

Ultimately, the most important long-term question here is, “How does a module price crash affect the U.S. worker and the U.S. economy?” Is it better for our country to impose tariffs on imported solar modules, or continue to allow the laws of supply and demand to pull prices down even at the risk of some local manufacturing? I don’t think I am alone among solar executives in believing that the greater benefits of the lower prices ultimately outweigh the pain that is being felt by a small number of U.S. manufacturers.

The fact is that with module prices falling every day, more and more of the system cost and revenue is going to U.S. jobs. This includes solar installers and integrators, and local makers and assemblers of non-module components such as racking, tracking, inverters, and junction boxes . This means that every dollar of government support driving solar adoption (which is still exponentially dwarfed by subsidies and tax benefits offered fossil fuel companies), is creating more jobs domestically than even just three years ago.

The second and more obvious conclusion is that as the price of solar modules declines the overall system price decreases. This in turn results in the price of the solar energy being cheaper and more competitive with fossil fuels. If we can continue to shrink any premium that people pay for solar energy (or better yet even eliminate it), the growth of solar in the U.S. will dwarf its already impressive run over the past decade.

Need proof? Between 2005 and 2010 the U.S. solar market grew more than 10-fold, from 79 megawatts to 878 megawatts in annual installations. Mirroring that growth has been a tremendous spike in solar-related jobs. When I started in this industry in 2002, you could literally fit the entire U.S. solar industry in a very large ballroom. Solar now employs more than 100,000 people in this country, including former roofers, electricians and contractors hurt by the soft construction market. This growth has largely been stimulated by falling prices and improved technology. While falling module prices over the last two years has certainly hurt some companies, overall we have created large numbers of jobs in this country and improved the return-on-investment for private and government investors.

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